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Tuesday, September 2, 2008

The Pernicious Inheritance Tax

Let's count all the ways that Americans get taxed. Everytime you earn even one dollar up to the government takes up to half of that for themselves, including state income taxes. Once the government is done taking your earnings, they take as much as ten percent, here in Cook County, of anything you spend money on. If you attempt to invest any of what is left over then the government takes another 15%, for now, of anything you make on that investment in capital gains tax. Attempt to turn on your lights, your heat, or your water, and the government will tax that bill as well.

If you attempt to purchase a property, the government will levy yearly taxes on that. Beyond that the government may even hit you with a fee just to procure the transfer of the property, the real estate transfer taxes. If you attempt to purchase a car, not only will there be the standard sales tax, but the government will charge you to register it. Furthermore, often, if you want to park that car on the street, the government will charge you to park your car. Frankly, it is impossible to get by living without running into a moment in which you are paying the government for something.

That's what make to so called inheritance tax so pernicious. In life each and every dollar you earn, then gets taxed as many as ten times. That doesn't seem to be enough for the government. Once they are done taxing you over and over in life, they are there to make sure and tax you in death. The government claims that the inheritence tax is there to avoid dynasties. This is nonsensical and ridiculous. First of all, what business is it of the government to stop dynasties. Henry Ford earned the right to make sure his family need not work a day in their lives. Second, the reality is that the inheritence tax does nothing to stop a dynasties. Multi hundred million and even billion dollar estates like those of the Kennedy's can withstand whatever tax is laid upon them. No amount of inheritence tax will stop the Kennedy dynasty.

What the inheritence tax does is punish savers. If you put away just $50 per month and invest that for 40 years and earn an average of 12% yearly on that money, you wil have just over $1 million dollar saved up. Of course, once you die, the government will take as much as half of it. Furthermore, it punishes those that have lived in their property for a long time. That's because the inheritence tax treats the illiquid home equity the same as cash. Often times, heirs are forced into the difficult position of having to sell property in order to pay for this inheritence tax. What's really pernicious about the inheritence tax is the idea that after the government is done taxing you over and over and over again life, they aren't done. Then, the government goes ahead and taxes you in death. The founding fathers are rolling over in their graves at the thought of a tax instituted upon death. Here is how Barack Obama attempted to justify his plan to re introduce the inheritence tax.

The estate tax would be effectively repealed for 99.7% of estates, and retained at a 45% rate for estates valued at over $7 million per couple. This would cut the number of estates covered by the tax by 84% relative to 2000.

The reality is that any number more than zero is far too many people paying the inheritence tax. Of all the obscene taxes and fees Americans are forced to pay their government nothing is more obscene than a tax for the "privilege of dying".

I'd like to know where anyone is going to get 12% interest on savings? The simple fact is that unless your parents are wealthy the odds that you will earn more than one million dollars total lifetime earnings are less than one in two hundred thirty one thousand. If you have an estate worth more than the current 3.3 million dollars that is exempt from taxation for a married family I seriously doubt you EARNED said cash, more likely inherited the greater part of it thus proving the point Adam Smith, Toms Jefferson and Paine, Teddy Roosevelt, herbert Hoover and others were making when they called for a 100% tax.